Let's be conservative about efficiency standards

William M. Bowen is professor of public administration and urban studies at the Maxine Goodman Levin College of Urban Affairs at Cleveland State University. He's also associate editor of the International Journal of Energy Technology and Policy.

There are good reasons for thoughtful conservatives to support the continuation of 2008's Ohio Senate Bill 221 (SB 221) in its current form.SB 221 is the 2008 bill that contains Ohio's renewable portfolio standard, or RPS. The law now is under attack by some utilities and others who object to legislative mandates for increased energy efficiency and public support of renewable energy technologies.Some liberals support the RPS on the grounds that it helps develop new markets for renewables and spurs the transition to a sustainably fueled society. Others support the RPS because they believe that such policies help to promote reduced greenhouse gas emissions, fossil fuel conservation for future generations, insulation from supply disruptions or fuel spikes, increased variety in the generation market, or national energy independence.While these are all undoubtedly positive and desirable social outcomes, many thoughtful conservative thinkers disbelieve that it is appropriate for government to use an RPS to achieve any sort of positive social outcome through intervention in markets. They would rather avoid governmental intervention whenever possible and leave decisions about how to allocate energy resources to unfettered free markets.This said, going all the way back to 1907 when Wisconsin passed the first state public utility law, it has been generally accepted that investor-owned utilities have legitimate monopoly status.

In other words, it has been taken as a given that competitive markets for electric power do not and will not work. States therefore have provided utilities with a charter making them the exclusive provider of electricity within a given service area, thus reducing the financial risk associated with capital-intensive investments in generation, transmission and distribution. In return, utilities have been obliged to provide reliable service and to submit themselves to regulation.While conservatives tend to eschew the use of public policy to achieve positive social outcomes in markets, there is, however, a very different set of reasons to advocate for an RPS — reasons consistent with conservative thought. Accordingly, RPS policies are not to be advocated as a way to achieve positive social outcomes but rather as a way to level the playing field in electricity markets.There are at least three aspects to this matter of leveling the playing field, all of which imply that it is a good idea to keep SB 221 in its current form.The first aspect is based on the polluter-pays principle. This principle says that the party responsible for producing pollution should be held responsible for paying the damage done by that pollution. Coal-fired electric power generating plants are by far the largest source of air pollutants that harm human health and contribute to global warming. The polluter-pays principle implies that the utilities that own and operate them should pay for this. When they do not, capitalistic markets fail in a way that gives established utilities an unfair market advantage relative to renewables.

The second aspect is based upon recognition of the indirect subsidies that give fossil-fuel-based electric generation an advantage relative to renewables.For example, according to Frances Cerra Whittelsey's 2007 book, “The Birds and the Breeze: Making Wind Power Safe for Wildlife,” the federal government in 2006 allotted $588 million in R&D funds to fossil fuels and $38.3 million to wind. If all such subsidies for fossil fuel were to be enumerated and evaluated, I'll bet the total value would be huge. These, too, arguable give established utilities an unfair market advantage.The third reason is the classic free-rider problem.If a utility selects renewable energy rather than fossil-fuel generation, this choice has a positive impact upon society and the environment. It takes the form of cleaner air. But the full benefit of this impact does not flow to the utility; instead, it inures to everyone. Any utility that has to pay all the costs of switching to renewable sources while not capturing all the benefits is likely to under-invest in renewable energy. In passing SB 221, the state of Ohio arguably took steps to remedy all three of these major market failures. Liberals who want to use energy policy to achieve positive social outcomes in markets have their set of reasons to support the continuation of SB 221 in its current form.But so do thoughtful conservatives, who, whenever possible, prefer to eschew governmental intervention in favor of allowing unfettered capitalistic markets to work.

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